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A firm is expected to earn $ 1 0 per share in one year and plans to invest 6 0 % of its earnings in
A firm is expected to earn $ per share in one year and plans to invest of its earnings in new investment opportunities, paying out the remaining as dividends each year. Once an investment is made, it will generate a fixed rate of return annually. Investors believe the firm's new investments can yield a return per year and require a expected return to invest in the firm due to the risk associated with these cash flows. What should be the current price per share? Additionally, suppose the firm announces that it expects its new investments to generate a return per year, while the plowback ratio and required rate of return remain unchanged. By what percentage will the stock price increase upon this announcement? Will this news alter the stock's expected return going forward after the price adjusts to the news
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